Somebody called Ralph Nelson Elliott, who was a lot smarter than me, worked out that that all tradable assets on the stock market move in waves. This was I believe in the 1930’s way before the time of Bitcoin and cryptocurrency.
The good thing for us though is that the same trends still occur in cryptocurrency trading. Why? Well, it is all to do with everyone looking at the big chart together.
When we’re all working out our support and resistance lines, and looking at channels etc, we’re all buying and selling at particular points.
This creates a “wave” effect and equals an increase in price and retracements.
Using waves is not for everybody. Some people trade using them other people simply say it just doesn’t work. I use them as and when I can make them fit.
The real problem with Elliott waves, especially on a short time frame such as the 15 minute or 30 minute etc, is working out where you place wave 1.
Elliott waves should work in this sequence 1,2,3,4,5 and then A,B,C
Wave 1 is a positive rising wave.
Wave 2 is a retracement.
Wave 3 is a positive wave.
Wave 4 is a retracement.
Wave 5 is a positive wave.
So, the best time to buy in on the first 5 waves is at stage 2 and 4. You would be looking for the retracement to finish and place a trade as wave 3 or 5 begins, then ride it back up.
Waves A,B,C (correction waves) seem to be where the wheels fall off for cryptocurrency. The swings with Bitcoin, to me, seem too great and I haven’t actually seen these waves fully complete. Usually wave A or B tends to just fall until another channel is started.
Sounds complicated? It’s not. In fact, again, luckily Bitcoin on its rise to $10,400 has just completed waves 1-5, plus wave A, perfectly.
Using waves, channels, and Fib lines is how I have been working out my daily Bitcoin analysis.
** Click on image to expand **
As you can see from the double bottom bounce we entered wave 1. Wave 2 broke the channel and at this point I didn’t think the waves were going to complete.
Shortly after there was the large spike back into the channel and wave 2 started. This would of been the perfect buy in point.
Even though I have marked the channel with ‘sell’ points you wouldn’t necessarily of had to take the risk of buying and selling all the way up.
The channel completed perfectly after the big retracement of wave 1.
A simple stop loss being placed just outside of the channel would of been enough to allow the price to continue to rise, this would lower the risk of a sudden swing back down.
After wave 4 the stop loss could of been placed closer ready for the turn south on wave 5 and stop you out, in profit.
Remember, do not be greedy. I’ve been there. You can try to milk the last few dollars out of a trade only for the trend to rapidly change and wipe out your profits.
Personally, I don’t trade after wave 4. If I was good enough I would be looking to ‘short’ around wave 5 and ride the trend back down. I have used BitMEX exchange to do this in the past but, for me, it hasn’t ended well and I’ve lost money. I may try this again in the future but just now I’m not ready for that kind of risk again.
So, there you have it… Elliott Waves.
Next is my favourite trading tools FIBS!!!